In The Public Eye: Exploring Structured Settlements for Public Entity Claims
By Alliant Specialty
Carleen Patterson and Justin Swarbrick sit down with Colin Finn, Alliant Structured Settlements, to discuss how Structured Settlements can help Public Entities control claims costs. One of the biggest drivers of the “Total Cost of Risk” for a Public Entity is claims experience. Since claims experience also drives premiums, it is critical to have a strong claims management and loss control program in place. Carleen Patterson and Justin Swarbrick sit down with Colin Finn, Alliant Structured Settlements, to discuss how Structured Settlements can help Public Entities control claims costs.
Welcome to the Alliant In the Public Eye podcast, a show dedicated to exploring risk management topics and challenges faced by today's public sector leaders. Here are your host, Carleen Patterson and Justin Swarbrick.
Carleen Patterson (00:19):
Welcome back everyone to another episode of In the Public Eye. This time of year, we've been talking about Public Entity risk managers and focusing on their insurance programs and whether they can control anything from coverages to limits to retentions. But that is just one piece of the large pie we call total cost of risk. And so, what we want to do is talk about some of the other pieces and one of the biggest drivers of total cost of risk for our Public Entity clients is claims experience. And so today what we want to do is invite Colin Finn to join us, to talk about one of the ways our clients can help control those claims costs and that is the structured settlement. So, before we get started, Colin, do you want to talk a little bit about yourself and tell us about your role here at Alliant?
Colin Finn (01:07):
Carleen and Justin, thank you so much for having me on the podcast. I'm super excited to be here. So, believe it or not, this is my 18th year in the structured settlement industry. My father actually entered the business in the mid 1980’s, and we worked together from 2003 to 2011. So, I had a great mentor and foundational understanding of this niche business called Structured Settlements. So not only are my experiences and expertise, fairly diverse, but the collective experiences and expertise of our team of consultants are vast. We have such a great team here at Alliant. We have seven structured settlement consultants. It’s a nationwide practice that focuses on providing credible structured settlement analysis and solutions to Public Entities, large hospital systems, national construction, contractors, the trucking and transportation industry, aviation, just to name a few. So, our role at Alliant continues to blossom each and every day, specifically within Specialty. Our team brings a host of services and solutions to Alliant’s clients when there's a personal physical injury loss. Most other structured settlement firms are not associated with large insurance brokerages. So, we can be an internal resource when Alliant clients incur these casualty losses. It has been a tremendous differentiator for our team and Alliant to be able to bring this service to the table.
Carleen Patterson (02:37):
Well, it sounds exciting, and I can't wait to dive into how this can help our clients, but maybe we should back up a little bit and talk about just what exactly is a structured settlement and then how it can be an advantage to our clients.
Colin Finn (02:51):
Sure. Carleen. So structured settlements have been around for about 50 years. They're a settlement option that are specific to personal injury and workers' compensation claims. They're basically guaranteed periodic payments, though I don't like to use the term annuity, they are an annuity not to be confused with a kind of retail annuity, and they're tailored to be structured to meet the future financial needs of the injured party or the family. So can a settlement be paid out in a cash lump sum? Sure, absolutely. But we believe the more prudent approach is to have a structured settlement as well as a cash component. And the cash component absolutely satisfies the attorney's fees and liens put some cash in the plaintiff's pocket. And then has these tailored payment streams moving forward and make no mistake about it. There are clear benefits to the defendant and to the plaintiff, but the advantages for Public Entities or any defendant can be summed up in the following. So first and foremost, engaging a structured settlement consultant like, myself does not cost anybody anything. There's no cost to the claim file. So I would imagine most people listening are probably familiar with something that's called a Medicare set-side life care plans, future wage loss, medical cost projections. So, structured settlements can credibly address all these matters. For example, when a Medicare set-aside is submitted to CMS, which is the center for Medicare and Medicaid services. The preferred option is to fund the future annual payments by way of a structured settlement. So not only does this provide cost savings to the defendant or the employer, but it ensures those annual payments will always be there for the claimant, which of course you're needing to protect Medicare's interests. It's truly equitable for both sides.
So, for instance, like when a skilled tradesman is catastrophically injured on a construction site, more times than not a structured settlement can help replace the future lost wages. Now I recognize there are absolutely times when the concept of a structured settlement falls through the cracks on a claim. Okay, we get it. In instances like that, believe me, you want and need your own representation. The structured settlement industry can often be likened to the Real Estate industry. The buyer has their own representation. The seller has their own representation. So each side has their own right in our industry to be represented. And so a properly handled structured settlement transaction is vital for both the defense and the plaintiff. And finally, this is something I just absolutely believe in there's a human element to every case. Empathy plays such a strong role in getting difficult cases settled, identifying the needs of the injured party, and then assigning meaning to the offers that are being presented can truly break down barriers to a settlement. I've been part of numerous cases where a structured settlement was utilized to fund an annual scholarship for the deceased child. There have been instances where the family used to go on vacation with the mother or father who passed away. And now we're funding that annual vacation that they can celebrate the life of the family member that they lost. And so, my point is I try to gather as much information as possible about each case so that we can assign meaning to our structured settlement offers.
Justin Swarbrick (06:09):
Colin, that's a good, that's a good summary. And quite honestly, this is something that is not discussed very often because a lot of these discussions I imagine happen in private, behind closed doors. So, it's good to know this is an option available when our clients do experience those large claims, but have you found that the structured settlements are more common with certain lines of coverage?
Colin Finn (06:37):
Yeah. Let's talk about the low hanging fruit. So that would be the realm of workers' compensation. And more specifically Medicare set-asides there's something called the Medicare Secondary Payer Act. Medicare's interests needs to be protected in these settlements, meaning that they're not going to pay first dollar. So when you have a workers' compensation case and there's an MSA, CMS actually accepts structured settlements to fund these future annual payments. And I can throw a dart against the board and tell you somewhere between savings of 15 and 35%, as long as I have, what's called an MSA Allocation Report. Usually that would be provided not by us, but by a Medicare compliance vendor. That would be working with the defendant or the employer or the carrier. Once that report is sent to us, all we have to do is basically, there's two components, the seed money and the annual payments, the seed money is not structured. We structure the annual payments over time. Again, CMS accepts that, and you can save depending on the duration and the age of the claimant, you can save anywhere between 15 and 35%, maybe a hair more. So, it's really a head-scratcher for me. When I hear about anybody, what we call lumping out, meaning just paying cash for an MSA. It's true savings to the defense. And it's absolutely valuable to the claimants.
Justin Swarbrick (08:08):
Most of our clients buy insurance and some have large SAR, some have smaller SARs. Are you typically working with the entities themselves or are you working with the insurance companies?
Colin Finn (08:22):
Yeah, that's a great question. So both. We have a number of clients that are municipalities that are large self-insured corporations that have large either fronting policies, large deductibles, sometimes that's carrier paper, but often times self-insured retention that we're directly dealing with their funds. In fact, there's, there's one company that structured so many of their Medicare set-asides over a five-year period that the self-insured entity reduce their future reserves by $20 million. So our clients can be carriers. Our clients can be a corporation or a joint powers authority, or a risk pool, any of those under the sun. So again, we talked about how like structuring MSA is a no brainer. You can't necessarily throw that same dart against the wall on the liability side, but usually the types of cases that we're working on are cases that have high exposure. Now, again, you can have a bad accident and there may not be a lot of money behind it. Usually, the ones that we are working on are so for if you're familiar with like New York labor law cases where there's strict liability on accidents, general construction injuries, medical malpractice cases, I mean, medical malpractice is always unique because the burden of proof is very difficult for the plaintiff on these cases. But when it is proven, the settlements and verdicts tend to be very large power, gas, and utilities, obviously electrocution type injuries, explosions and of course, the trucking components, as well, as we're talking about public entities. Now, I will say that one of the areas that continues to be on the rise are what's called section 1983 civil rights cases. So these types of cases deal with excessive force, which we all know can, can be like a George Floyd type case, a police shooting type case. Then of course, wrongful, or also known as reversed conviction cases. These sorts of cases can end up being extremely high dollar settlements and verdicts. So with the excessive force cases, you may have a plaintiff who is now catastrophic injured. We've seen some of those, unfortunately around the country or deceased, and now their lives or the lives and finances of that family are forever changed. And when you're dealing with wrongful conviction cases, you have individuals whose personal freedom had been taken away from them. I mean, in some instance for decades through, the coercion and fear of some of these interrogation practices by the police. While now they're free citizens, again, the prospect, I mean, imagine being in jail for 30 years being wrongly convicted, getting out, having a case settle, and then having to manage these huge sums of money while you're still getting re-acclimated to society, I can imagine that's got to be very overwhelming. So obviously we feel that addressing a cash component and a structure component of these settlements is the right approach.
Carleen Patterson (11:22):
So, you talked a lot about the way it's helpful to the plaintiff, but from a Public Entity standpoint, looking at their cash flow, their claims, how can it impact or be an advantage to them to look at some of these alternate ways of funding?
Colin Finn (11:41):
Yeah. Well, I mean, a close case is a good case, right? And not to mention that we're bringing a resource to the negotiating table that you don't have in your arsenal, otherwise. I mean, when you're talking about future medical needs, future wage loss, these are all things that a structured settlement can ultimately support. And so, when you're dealing with a Public Entity and of course, if it's their money, they're lowering their reserves. If they're working with a TPA or a carrier, there are benefits. And really the other side of the coin, Carleen, is that the structured settlement industry is still very robust. 2019, I mean, all COVID aside, we understand that we're not going to really target as a normal year, but 2019 was the largest year in the structured settlement industry in terms of, gross premiums. And so, as people continue to talk about where interest rates are structured settlements deliver these fixed guaranteed tax-free streams of payments, to these people that are catastrophically injured. So again, from a Public Entity standpoint, plaintiff's do want these, right. And so, I think that if you are ahead of the game, as opposed to trying to play catch up at the end and getting somebody involved, I think not only can we help position these cases for settlement, but everything is in place once that case actually settles.
Justin Swarbrick (12:58):
It actually makes sense to me that 2019 was the most active year for structured settlements. We're seeing it across the country. Jury verdicts are up, nuclear verdicts. Part of the reason the liability market for public entities is where it is. And we've seen the civil rights case as we've seen the wrongful imprisonment cases, and they're getting larger, they're getting more frequent. And unfortunately, we're not sure that trend is going to conclude anytime soon, but given the fact we are seeing more of these large nuclear verdicts or large claims settlements, could you walk us through the process of a structure settlement? and specifically what you and your team does for public entities when they're involved in one of these?
Colin Finn (13:45):
Ideally in a perfect world, which of course, none of us exist in you would have already a best practice in place for utilizing structured settlements. Most large carriers have those in place. And I often think that a lot of JPAs risk pools, public entities should have them in as well. And like what I touched on earlier about having an approved list of life insurance companies, understanding the documents, the timing of the funding, different language that they want inserted. These are all things that we can walk them through. But obviously prior to COVID, I would be traversing the country attending different mediations. So usually when I get involved with the case, I get notice of a mediation from the clients. I get an evaluation of the facts of the loss, the exposure. I would say the authority isn't usually necessarily shared with me unless I have a good relationship with the client. But usually some sort of a range or what we're trying to accomplish now on larger, more complex cases when you have a life care plan, when you have wage loss, or somebody has lost their health insurance, for instance, our team routinely goes to the affordable care act exchanges. And again, I say this, that it's in law today. So if I was at a mediation today, this would apply. So if somebody doesn't have health insurance moving forward, and they're not Medicare, Medicaid eligible, we can go onto the exchanges, find what the cost of healthcare is in their area. Find the most expensive plan, which of course they wouldn't have to buy. But then we structure that out with like a three or 4% cost of living adjustment, again, credibly making these offers to the plaintiff so that they can go out and ultimately secure health insurance on their own.
So again, I would attend a mediation. I could present live numbers as the mediator comes in and says, hey, this is where we're at. This is your offer. This is their demand. We would say, are we here? What do they need? Feedback would be presented to us and in real time, I present different structured settlement scenarios. So, let's assume the case settles, structure unlike the old days may not be agreed to right then and there. I'm always sympathetic to the fact that litigation takes a long time. Plaintiff's do need some time to soak in after three, four or five years of litigation that this case has settled. It is one of the downsides to a structured settlement in that it needs to be part of the settlement, the language and the payment terms need to be memorialized in the settlement agreement. So, there is some timeliness to it. So, let's say a week passes, they're sitting down with their own structure consultant. They reach out to me; I reach out to them. I'm making sure that I'm protecting the interests of the public entity. They're representing the interests of the plaintiff. Ultimately the plaintiff agrees to a plan, and then we get to what's called the post-settlement aspect where I talked about before, about best practices on making sure that the other side knows that there's a list of life insurance companies that we need to utilize that here are the funding parameters that we want a three-party qualified assignment release, that we need to secure probate approval for dealing with somebody that's incapacitated or a minor. And then ultimately after everything is submitted to the life companies, we'll get a policy contract. So that's kind of in a nutshell, the best practices are we do, and the value that we bring to a public entity.
Justin Swarbrick (17:04):
So, it sounds like you're the client's advocate as you go through this settlement process.
Colin Finn (17:09):
Yeah, I think that's a great way to put it. There's no question about it. Often times I've been in cases where my client and defense counsel aren't necessarily on the same page. So I'm the one being texted on the side or brought out to a break room to talk about these matters and those are fun because those are the people that you usually have a great relationship with and there's a reason that they're there, you have that personal relationship. And of course, the level of expertise that they require on these difficult cases.
Carleen Patterson (17:37):
So as a broker, working with clients, I'm trying to think about work through last runs. And we're aware of when certain claims happen are certain claims or situations where we want to bring something like this up earlier, rather than later? Or for our clients listening and they're thinking about their own loss experience and maybe a structured settlement hasn't been brought up to them before. Is there some things that they can think about and say, oh, this would make a great one. Let me call Justin or call Carleen and have a conversation about this. Are there certain things they should be looking for?
Colin Finn (18:19):
I'll reiterate, just identifying needs of the plaintiff. If you've got a case where you're paying $300,000 and there's a hundred thousand in liens and the attorney needs to be paid, you've got to put some cash in the plaintiff’s pocket, assuming we're not talking about a minor, those are going to be difficult cases to settle. If you're talking about somebody, often times that requires a special needs trust, for instance. A structured settlement can supplement and be paid into a special needs trust when you're preserving somebody has Medicaid, eligibility, Medi-Cal eligibility. But in terms of identifying cases, I think that the main factors are down future wage loss, loss of household services, a death case where somebody was a wage earner, a future medical needs. And I think there's a creative aspect that we bring to the table. I mean, obviously we can stretch those dollars. I get it, people that are listening and saying interest rates are low. I always laugh at because we're dealing with people that are injured. We're not dealing with people that can tolerate high risk. And so I do believe that stretching those dollars to help move these people forward in their lives and provide that financial security may not reflect in direct savings to the public entity, but it'll get that case settled. Now, again, workers' comp, absolutely throw a dart at the board, I can tell you exactly what you're going to say on a case. On a liability case, there's a little bit more nuance to it, but there was actually a CLM study years ago about high-level carrier executives that, for the most part, stated that they believed when a structured settlement was involved in a case that it helped the case settle. Now, again, you can't pinpoint any one thing that it does, like I just said in a Medicare set aside in a workers' compensation case, but I think there's a lot of intangible values that we bring to the table, especially with the creativity.
Carleen Patterson (20:09):
So, any other points or advice before we close today?
Colin Finn (20:14):
I would be remiss if I didn't mention that it's not just physical, personal injury cases that you can utilize the structured settlement on. Yes, those are what we call the qualified structured settlement cases, but there's a whole cavalcade of non-qualified cases that you can utilize structured settlements on. Albeit on a tax deferred basis not tax-free, those types of cases include employment litigation, which we all know is absolutely huge right now, wrongful termination, sexual harassment, discrimination. Other cases that may fall under non-qualified silos are contract disputes, punitive damages. So believe it or not, when there's a punitive aspect, you're going on a personal injury case, that's a taxable currency, as opposed to tax-free. I think a huge area that probably isn't utilized enough is environmental claims. When you've got like a long remediation period, you can structure those payments over time, which could result in some savings to the entity needs to put forth those funds for that remediation process, D&O and E&O claims, probably not so much D&O. They haven't been presented as regularly. I think E&O claims, often times you can have a derivative claim where coverage, for instance, on a boating accident where they thought they had an excess policy, and that coverage was not put in force by the agent. And so, you can actually structure those payments still on a tax-free basis on a personal injury case, but on a non-physical, personal injury case, you can still structure those. And then of course, attorney fees for both of the affirmation cases, as well as physical personal injury cases. Now, is there a direct benefit to the defendant in those cases? No, but I often find that at the end of a lot of these cases, the plaintiff attorneys do want to structure their fees. And I think it lowers the temperature a little bit. Again, if the defendants, at least on the forefront understand that this is an option, why is it an option? Maybe someone like myself provides them with the ruling of Child's vs Commissioner, which talks about the deferred compensation aspect of attorney fees and that they can be structured because I do see a lot of cases settling. Plaintiff attorneys requesting their fees to be structured the defense saying no and now you're back at this high-level boiling point again, which can, a lot of times actually undo settlements that I've seen in some instances.
So, at the end of the day, I think whether it's a physical personal injury case or a non-physical personal injury case where utilizing a non-qualified structured settlement, the plaintiff and their attorney can be benefited in maximizing the available dollars future financial needs. And again, the benefit to the defense side is getting these cases resolved. And it's a creative avenue that maybe just dollars alone would not get done. Like I've said, a couple of times absolutely involve your own consultant and the earlier the better. Like I said, we are a free resource to you. Our team at Alliant has decades of experience in putting together the settlements that are both large and small, depending on the facts of the case, we can work up meaningful, incredible plans. We can attend mediations, whether it's in-person or virtual, hopefully in person, because then you can build those relationships over time and then adopting a best practices. It's something that we can kind of walk you through, or at least if you have a client that hasn't utilized some of the past, why they want to utilize them and how they can best utilize them. And of course, making sure that there is a qualified assignment on uncertain personal injury cases, meaning that there's no contingent liability on those periodic payments to that entity moving forward. And I would say my final thought on this, and I find myself saying this so often is that I hear this from both plaintiff attorneys, as well as on the defense side. Sometimes people mentoring these low rates. And I always think to myself, well, relative to what some high risk investment, I mean, we're dealing with people that can't tolerate high risk. And so I often say that we cannot conflate personal wealth and money derived from personal injury settlements from contemplating investment options. I mean, clearly the latter requires a more risk adverse strategy for these injured people. So again, the prudent approach is a combination of liquidity investments and guaranteed tax-free structured settlements.
Carleen Patterson (24:40):
Now you sure have given us some food for thought, just looking at it from a structured settlement standpoint, what I would have thought just intuitively would make good cases yet it's much broader. And the application is much broader than what I initially thought before this conversation. And hopefully this has also helped our clients and others listening think about this as an alternative way to get claims closed because you're right, a closed claim is good. And from a total cost of risk standpoint, when we're approaching the insurance market on behalf of our clients, a big piece of it is they're looking at your loss history and that loss history drives what brokers can do work within the marketplace. And so they're very related to each other. So, really appreciate your time today Colin and hope this will help generate some questions with our clients and prospects. It's a challenging time and we're looking for innovative ways for you to make your jobs easier. So thanks very much.
Alliant note and disclaimer: This document is designed to provide general information and guidance. Please note that prior to implementation your legal counsel should review all details or policy information. Alliant Insurance Services does not provide legal advice or legal opinions. If a legal opinion is needed, please seek the services of your own legal advisor or ask Alliant Insurance Services for a referral. This document is provided on an “as is” basis without any warranty of any kind. Alliant Insurance Services disclaims any liability for any loss or damage from reliance on this document.
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